Good afternoon everyone. Thank you for standing by, and welcome to the Q3 2021 Amdocs Earnings Conference Call. At this time, all participants are in a listen-only. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Mr. Matt Smith, Head of Investor Relations. Please go ahead, sir.

Thank you, operator. Before we begin, I would like to point out that during this call, we will discuss certain financial information that is not prepared in accordance with GAAP. The company's management uses this financial information in its internal analysis in order to exclude the effect of acquisitions and other significant items that may have a disproportionate effect in a particular period. Accordingly, management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the company's business and to have a meaningful comparison to prior periods. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today's earnings release, which will also be furnished with the SEC on Form 6-K. Also, this call includes information that constitutes forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material. Such statements involve risks and uncertainties that may cause future results to differ from those anticipated. These risks include, but are not limited to, the effects of general economic conditions, the duration and severity of the COVID-19 pandemic and its impact on the global economy and such other risks as discussed in our earnings release today and at greater length in the company's filings with the SEC including our annual report on Form 20-F for the fiscal year ended September 30, 2020, filed on December 14, 2020, and our Form 6-K furnished for the first quarter of fiscal 2021 on February 16, 2021, and for the second quarter of fiscal 2021 on May 24, 2021. Amdocs may elect to update these forward-looking statements at some point in the future. However, the company specifically disclaims any obligation to do so. Participating on the call today are Shuky Sheffer, President and Chief Executive Officer of Amdocs Management Limited; and Tamar Dagim, Joint Chief Financial and Operating Officer. Finally, a copy of today's prepared remarks will be posted on the Investor Relations section of Amdocs' website following the conclusion of this earnings call. And with that, I'll turn it over to Shuky.

Thank you, Matt, and good afternoon to everyone joining us on the call today. I'm pleased with our Q3 performance, which I believe reflects the positive impact of the strategic initiatives we executed this year to accelerate Amdocs' long-term growth. My comments today will refer to certain financial metrics on a pro forma basis where applicable, to provide you with a sense of the underlying business trends, excluding the financial impact of OpenMarket, which we divested on December 31st as previously announced. Revenue was above the guidance midpoint, up 9.4% from a year ago on a pro forma constant currency basis and consistent with our expectation for a stronger second half. Profitability remained slightly above the high end of our target range and we generated robust free cash flow, of which we returned the majority to the shareholders by way of quarterly share repurchase and our dividend program. The strong sales momentum we've seen in the recent quarters also continue in Q3. On a pro forma basis, 12 months' backlog was our highest ever and up 10.8% from a year ago. Additionally, our growth engines are contributing to new business awards, including digital and 5G system modernization, cloud migration, and net generation of sales platforms for networks. The breadth of the demand is positive sign of our growth strategy is well-aligned with the ever-evolving needs of our customer and our ongoing commitment to innovation. Over the past several quarters, we increased our R&D investment as a percentage of revenue and extended our lead in what we define as the 5G value plan. The 5G value plan integrates key capabilities such as charging, policy and monetization as well as multi-access edge computing and software-defined networks to support the upcoming rollout of 5G stand-alone networks that will allow service providers to drive…

Thank you, Shuky. Let me start with the quick housekeeping item with respect to OpenMarket, which was included in our reported numbers for income statement and cash flow in the first quarter of fiscal 2021, but is excluded for the second and third quarters of fiscal 2021, following the completed divestiture of this asset on December 31, 2020. To provide you with a sense of the underlying business trends, my comments today will refer to certain financial metrics on a pro forma basis, which exclude the financial impact of OpenMarket from the current fiscal year and comparable fiscal year period. Third fiscal quarter revenue of $1.07 billion was above the midpoint of our guidance range of $1.04 billion to $1.08 billion. Revenues include a positive impact from foreign currency fluctuations of approximately $3 million relative to the second fiscal quarter of 2021 and a positive impact of $5 million relative to guidance. On a pro forma basis, revenue grew by 9.4% year-over-year in constant currency in the third fiscal quarter. Our third quarter revenue grew by 3.9% year-over-year as reported and was up 1.9% on constant currency. Our third fiscal quarter non-GAAP operating margin of 17.6% remains slightly above the high-end of our long-term target range of 16.5% to 17.5% and was up 50 basis points from a year ago. Non-GAAP operating margin was unchanged on a sequential basis. The improvement in GAAP operating margin from a year ago reflects the investiture of OpenMarket and operational excellence initiatives while accelerating our R&D investment in our strategic growth domains of digital, 5G and the cloud. Below the operating line, non-GAAP net interest and other expense was $1.2 million in Q3, the mix of which includes interest expense related to our short-term borrowing and 10-year bonds, offset by a favorable impact of…

[Operator Instructions] We have our first question from the line of Jackson Ader from JPMorgan. Your line is open. You may ask your question.

Thank you. First question is around, how we should be thinking about the kind of pro forma growth in the backlog number relative to what we should be thinking about how that flows into growth in revenue once we get past kind of all this divestiture of Openet and everything moving forward.

So Jackson, hi, Tamar speaking. Just to clarify, when we talk about the backlog and the fact that it's growing 10.8%, this is already on a pro forma basis. So we made sure to take out the noise, if you will, of open markets from the comparable number of last year. So you will see the actual real trend in terms of the 12-month better. Very happy with the business momentum we are seeing. We've signed actually business across all key regions. So, not -- I cannot say that it's coming just from one specific place. Actually very happy to say, it's balanced across many accounts, many regions, we talked about several examples during the prepared remarks. So we'll be happy to elaborate. And I believe that we are enjoying now the relevance of our offering to the industry investment cycle in cloud, 5G, digital transformation. We are continuing to -- to continue to see very well fit between what we prepared in terms of our offering, in terms of our products and in terms of the customer demands. And as we've always said, backlog is a good leading indicator, but you shouldn't take it literally as the 1:1 ratio necessarily for revenue growth. And in general, when we are looking on backlog, it's adding to the visibility of the business. The whole meaning of the backlog is to give you some confidence about what we have already as a side business, is a business that we have high level of predictability on. So, we're very encouraged to see the improved visibility as represented by the backlog.

Okay. Great. And then Shuky, in your remarks, you mentioned signing a Vindicia deal with Adobe and that's just an interesting vertical if we think about, right, companies like yourselves, software company with subscription revenue models. So, can you give us any kind of an idea of maybe outside of your peer telecom or media, how big the opportunity might be for Vindicia and the technology or software market?

So, as we mentioned, Vindicia is a very robust subscription billing SaaS model. Adobe actually is going to use it for the subscription model for the product and services. Vindicia is tightly integrated to our MarketONE platform. And the whole idea is to give our customers and also, obviously, customer like, Vindicia, the ability to leverage from the OTT economy, which usually is a subscription based. So we have like a full solution based to support any over-the-top type of sales that also bring integration, like the Netflix of the world, Spotify and others and to bring additional subscription billing capabilities. There is in some places of the world that the subscription build is also adopted on top of the postpaid or traditional prepaid models. And I can tell you that, this offering is being used not just by our telco customers, but some other customers like Adobe.

Okay. Great. Thank you.

Thank you.

Thank you, sir. We have another question from the line of Ashwin Shirvaikar from Citi. Your line is open. You may ask your question.

Yes. Thanks. Can you hear me?

Sure.

Hi, Shuky, hi, Tamar. My question was with regards to – Shuky your remarks, obviously, you spoke about demand due to digital modernization, 5G, cloud, next-generation OSS, these are factors that obviously helped you for a few quarters here. Is there a geographical look you can provide? Is it different by North America versus EU versus rest of world? And then the follow-up question to that is, is the European Rest of the World sustainable?

Is the Europe what?

The Europe and Rest of the World growth, can it be sustainable at higher levels?

So let me start with the second question very, very much. So we have a very, very good pipeline in Europe, additional large deals. So we are very optimistic that we are going to sustain this incremental growth in Europe. And for the first question, I think that when we talk about the three, four trends. So I think that in the journey to the cloud and digital modernization, and I think that pretty much it's consistent across geographies. It relates to 5G and next-generation networks, I think the US is leading. Europe is a close follower and then APAC and Latin America. So this is where we see more, I'd say, activity of moving to stand-alone 5G networks in North America. It's a bit ahead of the Rest of the World. But Europe is a very close follower. APAC is the same. So I think that eventually, in like, I don't know, 18 months, pretty much the trend will be completely very much balanced across the different regions. There are some countries like, I think, the most advanced country in 5G standalone is actually South Korea, which we are operating and supporting both periods and give us a lot of now in this domain. But to your question, I think that the 5G rollout in the US is ahead of the Rest of the World. But I think it's going to be there in the next, I don't know, nine to 18 months, everyone we probably will see some balanced activity in this domain to

Understood. Thank you. And then the other question was with regards to just the delivery and other companies in the services space, obviously, talked about talent being difficult to find and so on and so forth. What's your view with regards to the supply of talent that you need for your particular set of services. Can you comment a little bit on your delivery stack, if you will. And if that presents potentially an opportunity if you can continue to provide digital transformation expertise and 5G expertise where others cannot.

I can start away. First of all, as I mentioned, we are very proud with our capabilities with all the issues around pandemic. I think we have thousands of tons and employees at Chrysler award are doing a great job. I think it Amdocs represent a lot of unique opportunities to talent. And I think that we are doing well in recruiting new talent in all domains, 5G, cloud, et cetera. We have a very robust site strategy. So I think that if we have some pressure on one site, we can obviously balance with other sites. And so I think that like everyone else, we see that there is a lot of demand for the new skills, cloud and others, but I think that we are doing pretty well in being able to recruit in this domain. Tamar, do you want to add?

I just want to add that our access to many talent pools around the world is obviously giving us a lot of believers in terms of where we are reporting, how we are onboarding employees, ability to attract talent in different places of the world from Guadalajara, Mexico all the way to the East Philippines…

Philippines…

…Philippines and India and everything in between. So that provides, obviously, great flexibility. Another point is that the internal career opportunities in Amdocs having the unique model of doing both the software development and cutting-edge technologies, latest greatest on the planet. And at the same time, having real-time experience in delivering projects to leading customers around the world is a very unique career opportunity that we can provide our target employees as well as existing employees that translates to high level of internal mobility that adds to the capability of people to find their career and move within the company.

Got it. And thank you for those points, and congratulations on the quarter.

Thank you.

Thank you.

Thank you, Sir. Our next question is comes from the line of Tal Liani from Bank of America. Your line is open.

Hi. Congrats on a great quarter and guidance. I have a question on the negatives or potential negatives. The first one is your software sometimes depends on equipment that is being installed by carriers, whether it's 5G base stations or even switches and routers. And how much of an impact do you see from the supply constraints that your customers are seeing? We are hearing from the equipment vendors that they can ship what they are being asked to ship and the question is does it cause, any delays on your end to deploy the software?

Hi. Tal, the answer is very short. There's no impact. The majority of implementation of software implementation and the monetization system are on the cloud. So there is no -- obviously, you know that there's no impact there. In the network deployment, we are mainly doing planning. So it's not -- we don't -- I don't think we see any impact on the equipment itself. So to tell you the truth before you ask this question, I was not even aware that there was an issue. So I don't think there's any impact on us.

Good to be on the good side on the software side. Second question is another negative potential negative, which is a delta variant. We are seeing the return of restrictions across the board and worldwide. Does it have any -- does it impose any risk to your ability to deploy, or did you factor in anything in your guidance?

Actually, the majority of the Amdocs employees worldwide, still working from home and definitely in India which we have a large workforce, so we want to bring the employees back to the offices, because this is the right thing to do. By the way, we advanced a lot in the last quarter with the vaccination program. The vast majority of our employees in India are vaccinated this quarter. So I don't think -- I think that -- the only thing it impacts us that we are more bullish on getting back to the employees back to the office and start to innovate together within the offices. So this probably could slow down a little bit given the delta impact. But other than this, I mean, we deployed this quarter, the record high deployment over 100 production implementation without issues doing -- while the vast majority of the employees are working from home. We have the right capabilities, methodology. So as I said, the only impact that we saw that we can get the employees faster back to the office, but there was no impact on our ability to deliver the services.

And the fact that there are, again, travel restrictions and maybe even meeting restrictions with customers, it also doesn't have any impact?

I can tell you that although the vast majority of our customers are still not yet meeting. Obviously, cities we work together on customer -- so I don't think there is an impact. I mean, we are working on this environment for the last 18 months. So we became very good at that. We said we thought that we can bring employees faster to the office. We do still -- we do meet customers even in this environment. I think that this quarter, there is increase in face-to-face customer meeting comparing to before. So again, obviously, if we like to meet our customer face-to-face, we want to bring employees back to the office. And I think delta probably will slow it down, but I don't think there's an impact on our business.

Great. Thank you.

Thank you Tal.

Thank you sir. [Operator Instructions] We have another question from the line of Tim Horan from Oppenheimer. Your line is open. You may ask your question.

Good evening. This is actually Edward Yang on behalf of Tim Horan. Shuky, I know it's early days, but could you provide an update on the Verizon relationship. I think they were taking the CatalogONE and NEO product from your portfolio? How has experience been there and the opportunity to expand that business?

I can show some deal. But I can tell you that the programs are going well. I think that we continue to create trust, and I think that Verizon like both our products and our people. And without giving more information, I can tell you that why we are doing that. There is some discussion about other opportunities. When we will be more mature, we gladly share this with you. But overall, it's moving well.

Perfect. And as a follow-up, could you comment on some of the announcements that AT&T has had this quarter some pretty significant strategic moves, their agreement with Azure for operators, for instance, and also their MVNO agreement with DISH. What are the puts and takes and the effects on Amdocs business?

Most of them don't have, I think, an impact on Amdocs and maybe some type of potential. As you're well aware, we are partnering today with Microsoft and AT&T, and we are obviously doing a lot of activity of translating and moving a lot of hundreds of AT&T applications to the cloud. This partnership with Microsoft to the Microsoft Azure platform. I think I cannot tell you right now specifically, but I think this agreement between AT&T to Microsoft in the network domain, probably create some opportunities for us given the fact that we have a very good understanding of the environment in AT&T, given our experience of developing ONAP, together with AT&T. So I don't see any headwind and if any, I see some opportunity.

Thank you.

Thank you, sir. We have another question from the line of Tom Roderick from Stifel. Your line is open. You may ask your question.

Hi, Tom

It's Matt VanVliet on for Tom. Thanks for taking my question. I want to start kind of following up with that and just thinking about the AT&T and T-Mobile opportunity. You mentioned quite a few wins agreements with them this quarter. But just how much room is there left to grow with that relationship and kind of the merger going up?

So I think I can give you a couple of answers. A, everything that we are doing right now both in AT&T and T-Mobile is just a very initial stages. We just -- we talked about the modernization cycle both in AT&T and in T-Mobile and obviously, in Verizon that started last year, and we are enjoying this tailwind because we were selected by both to be the main monetization system for the consumer platform and T-Mobile also in the B2B platform. So these projects are starting. So the vast majority of the activity is still ahead of us. On top of it, I think that there's a lot of opportunities on top of the existing activity. A good example is that we announced a deal with AT&T the quality engineering testing environment that we have -- this is above and beyond we were doing so far. We are doing the same with T-Mobile and getting additional business on top of the -- in this one, I think this time we discussed the zero-touch operation environment and others. So there is -- so the answer is yes, there is a room -- there very much room to grow the existing activities. And additionally, the activities that we mentioned, which is the huge of the modernization of all the consumer business and both in T-Mobile and AT&T and T-Mobile also, the B2B, this project just started. This is really initial stages, and we see a lot of costs ahead of us.

Got it. And then just thinking about that and 5G being led by the U.S., how should we look at the geographic growth going forward? I think you said that open market was predominantly a U.S. business. So there's been kind of a depression there. But should we expect a surge in U.S. activity to kind of catch up to the growth that you're experiencing in Europe and the rest of the world?

So just to clarify, when we are providing our pro forma indications, it's taking out the OpenMarket from the comparable period in order to talk about the trends. So the underlying trend after doing the pro forma adjustments for the comparable periods in which we had OpenMarket. So in order to compare apples to apples, we are seeing growth in all key regions. We are seeing growth in North America, in Europe and in the rest of the world and are all performing also this quarter also, if you look -- if you can see sequentially, all three regions will -- if you would do the year-over-year on a pro forma basis, all three regions grew. So we're very happy about the growth overall being balanced on the key regions.

And just to add, the thing that, generally speaking, we are very happy with the Openet acquisition. We always had a lot of respect to Openet before we acquired them. Now that they are part of Amdocs, I don't think there is any solution in the market that is even close to the policy in charging solution cloud-based offering. Really, this is the number one top notch offering in the market. There is a lot of demand, and I think it's going very well for us.

Got it. Thanks.

Thank you, sir. There are no further questions at this time. I will now turn the call back to Mr. Matt Smith for closing remarks. Sir?

Yes. Thanks, everybody, for joining the call this evening and for your interest in Amdocs. We do look forward to hearing from you in the coming days. And if you have any additional questions, please call the Investor Relations group. And with that, have a great evening, and we'll wrap up the call. Thanks.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for participating. You have a good day.